Victoria, BC real estate blog - "because we never know when interest rates will be increased to stimulate the economy" ~ VREB

Thursday, July 3, 2014

July update

Busy times at work and home, so haven't had much time for the blog lately. Of course the small matter that we're no longer house hunting in Victoria plays a role. However the comments are great as always, so here's another post to keep the party going.

June numbers are out and I'm happy to see that a bit of the old VREB salesman spark is back. It's a good time to buy and a good time to sell, so everyone should be happy, most of all the realtors. It was looking like a mass extinction event was underway for Victoria realtors, but this upswing could forestall that.

Year over year sales increases are starting to peter out, mostly because we're starting to compare to months where it was already picking up last year. Prices up a bit in the core, down a bit on the west shore.

Marko reports that many buyers are holding on to their rentals to get a better price. Just like they were last year, and the year before, and the year before that. Eventually, "I'll hold out another year" turns into "f*ck it let's sell".

Victoria’s June and December price levels have been plotted on this 6-month price chart. I’ve also included May 2014’s level.

May 2014’s monthly price level was lower than any monthly price level since August 2007 (except April 2014, which was slightly lower). As of May, prices in Victoria were 12.2% below peak.

We are already half way to 25%. This is remarkable, considering that this has happened while prices in many other Canadian cities are still rising and reaching new all-time highs.

Many international economists agree that Canada‘s party will soon be over. Housing bubbles are only a temporary thing. The inflation of Canada’s housing bubble has boosted the Canadian economy for more than a decade, but that boost will prove to be temporary, as it always is with housing bubbles.

Falling house prices had a negative impact on economies in other countries (the US, Ireland, Spain, Greece, Japan, etc.) as their housing bubbles deflated. The same thing will happen in Canada.

Canada’s housing bubble is enormous in size. In fact, it is the largest in the world right now. The deflation of Canada’s housing bubble will involve a deep, multi-year price correction.

How deep will house prices correct in Canada? How low will Victoria go?

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Considering that you say prices have declined about 12% since the early peak and considering that the sum of inflation since 2008 is also about 12%. Then the real decline in house prices is closer to 25%. Now add in a further decline over the next three years from inflation, further minor price declines, and additional price decline of about 3% from rising interest rates; then you will have an effective price decline of about 35% from peak BUT without much actual dollar value decline, going forward. In other words, in three years, a house that sold in June 2014 for $650,000 might sell for $625,000 in June 2017.

Everyone on this blog will be "right" - the bulls and bears will all be able to say "I was right" and the banks will be happy, CMHC will be happy, and home owners will be happy at mortgage renewal time.

Info, you're expecting the big 'correction' to manifest in falling prices, but the 'correction' might just be the continued stagnation for several years, without major declines in prices.

Info, you're expecting the big 'correction' to manifest in falling prices, but the 'correction' might just be the continued stagnation for several years, without major declines in prices.

And if you consider the drop in prices relative to purchasing power it's been pretty huge. In 2008 mortgages were going for 5.5% or so. Now prices are the same or a bit lower, and mortgages cost 2.9%, wages have increased quite a bit in the 7 years, and inflation has eroded away a lot of the value.

I’ve been watching the Chapman St building project for several weeks. The old house is gone and the excavators have finished digging. They almost lost the excavator that was digging down for the foundation… it sunk into the old Fairfield swamp!!!

The Fairfield Swamp was mostly a dormant issue for the past 50+ years. The swamp was drained in the early 1900's and new houses built between 1910 and 1955, along May, Chapman, Oxford, and intersecting streets. Many of those old houses had sloping floors 60 years ago when I was a kid in Fairfield, now those old houses are nearing the end of their life.

Every year a couple of these old houses get renovated. Now the oldest houses are getting beyond a feasible renovation, so during the past few years several owners have been lifting and rebuilding the old houses or simply knocking down the old and building new houses.

Surprise...!!! What do they find 5 feet below ground? Soft waterlogged sponge-clay, even in July. The swamp is still there, it was just drained to a depth of about 5 feet below grade at the lowest point which is Chapman St.

A few builders/owners on Oxford and Chapman tried excavating a new basement but were unable to reach suitable structural bearing clay, so they kept digging deeper and deeper until they had dug out sponge-clay and peat to a depth of over 20 feet; then they gave up and had to get geotechnical engineers to design an engineered rock fill that would support the new house on the north side of Chapman and the lift on Oxford. Now a new house is being built on soft wet sponge on the south side of Chapman. Meanwhile the empty lot at the corner of Oxford and Linden awaits construction.

As I mentioned, I watched the excavator trying to excavate for the new build on Chapman several weeks ago, but the excavator was slowly sinking in the swampy muck, so the builder brought in a huge excavator with a long boom to excavate while the excavator was positioned in the front yard/boulevard. The sub-soil was like soft sticky jello, so they only went down a few feet then poured extra-extra wide footings… hope it works for them…

I wonder how that building plan is progressing at Oxford and Linden? I'm watching and waiting for the excavation to begin on that pit. I'll be watching the old swamp being dug out at this lot and I'll probably go after hours to collect old stone arrowheads; the old Fairfield swamp is full of stone arrowheads from the 5,000+ years of First Nations hunting birds and game in the old marsh lands. I’ll probably see Grant Keddie searching for stone artifacts while I’m rummaging through the muck.

Talking to the builders on Oxford and Chapman I get the same warning from them all. "Budget an extra $150,000 for the excavation, geo-engineering, and structural engineering if building or lifting in this area.” So I'm passing along this warning/advice to all the bloggers on HHV, it's a great neighbourhood but if you plan to lift or build, add $150,000 to your budget just for the excavation and engineering.

Thanks @LeoM. I just passed your post to my friends who are doing a total reno on their house in that area. They did lifting and poured new in-floor heating basement foundation over the old one. I hope that they are lucky that their lot is on the higher point.

An inspector would not be able to comment on any hidden or unapparent conditions. That may include soil conditions or oil contamination.

If your intention is to buy an older home and re-build you would have to have a qualified tradesman take samples and test drill the site. There is no way that someone walking the site could tell you how deep you would have to excavate to find hard pan.

"I wonder if buyers take this type of information into account when they look at buying a house?"

I hope so. I know I looked at all of those maps when house-hunting, plus tsunami maps. Looked at 1 house in very low lying area in Cadboro bay that I figured would be a flooding hazard in a big winter storm let alone with some expected sea level rise.

Excavation costs are very difficult to predict on most projects. On my house I had everything budgeted within a few thousand but I went $10,000 to $40,000 for excavation. Too many variables...you could hit rock, you could hit soft clay, the topsoil could be clean enough for you to dump it for free, or you might have to pay for dumping ($$$), etc.

It is an inherit risk of building or raising a home and no seller is going to let you dig test holes on a residential property.

I wonder if buyers take this type of information into account when they look at buying a house?

I sometimes send earthquake risk maps to potential buyers but rarely does anyone ask or worry about it. It isn't a huge consideration for the majority of buyers otherwise we would see more people buying on rock in Langford. Waterfront, especially lowbank, goes for huge coin, so I don't think too many are worring about tsunami either (I am not saying it can't happen).

Personally, regarding earthquakes, I'll start worrying when you CAN'T buy earthquake insurance but while they are still selling earthquake insurance I don't see too much reason for concern.

If you are building a new house even less reason for concern given the new seismic requirements. If your brand new house is damaged in an earthquake 95% of other homes likely will be in worse shape.

"Personally, regarding earthquakes, I'll start worrying when you CAN'T buy earthquake insurance but while they are still selling earthquake insurance I don't see too much reason for concern."

Yes, it is good that you can take out insurance to cover the house in an earthquake.

However, there is also the safety of those living inside it to consider (which I would think was a more important factor). If your house is built in a more hazardous area, that should be something to think about when buying.

I remember being in an older Fairfield home in 2001 when there was a shake – we were renting short term and I was quite surprised at how the house moved, and that was a minor one.

The February 28, 2001 "Nisqually" quake was 6.8 on the Richter scale - a moderate earthquake by most standards. I certainly felt the 25+ seconds of shaking in my Saanich West home. Mind you, my house is on 6 metres of clay.

I know I looked at all of those maps when house-hunting, plus tsunami maps.

We did as well. Nothing too close to the waterfront either for tsunami and rising sea levels. The things that become important if you're planning on staying a long time. The big one is moderately likely in the time we will be living in this house.

I'll start worrying when you CAN'T buy earthquake insurance but while they are still selling earthquake insurance I don't see too much reason for concern

They will always sell earthquake insurance. The question is how much does it cost.

However, there is also the safety of those living inside it to consider (which I would think was a more important factor). If your house is built in a more hazardous area, that should be something to think about when buying.

Great in theory...not sure what you do with it in practice? I took my new house blueprints to three structural engineers earlier this year for a consultation. Two had 15+ years experience and one was at 5+ years. All had different interpretations of how the home should be engineer to meet seismic requirements. One guy wanted me to go back to my designer, take out a number of windows out of my great room, and then to come back to him? Obviously, I didn't go with him as the other two engineers said no need to take out windows. Does that mean my house will fall down in an earthquake?

If three professionals cannot agree on a brand new home in terms of seismic design how do you draw any conclusions on an old house? What are you likely to be safer in? A 1970s Gordon Head box on soft clay versus a 50s bungalow on the Lansdowne slope versus a character home without proper footings on rock in Fernwood? Too many variables to worry about it. If you are really worried about earthquake safety a rancher on bedrock somewhere in Langford is probably your best option.

If three professionals cannot agree on a brand new home in terms of seismic design how do you draw any conclusions on an old house?

Lots of data out there on how structures respond to quakes and how different soil responds. It's not like it's an unsolvable question. Depends on how safe you want to be of course. Probably those windows compromised the structure a bit, but if you'd rather have windows then so be it. Doesn't mean the guy is wrong.

Lots of data out there on how structures respond to quakes and how different soil responds. It's not like it's an unsolvable question.

I agree with you in that you are definitely safer in a rancher on bedrock in Langford versus a three level character home built on the Fairfield Swamp; however, I don't think the data can be specific enough for the inbetween scenarios. 1970s box on clay in Gordon Head versus character home on bedrock in Fernwood? versus 100s of other scenarios with different variables.

Depends on how safe you want to be of course. Probably those windows compromised the structure a bit, but if you'd rather have windows then so be it. Doesn't mean the guy is wrong.

Every window compromises structure. I don't want to be so safe that I have no windows.

Oak Bay has now some 5.4 Months of Inventory with 108 houses for sale. The median asking price is now $1,296,500. Yet for the last six months the median selling price has hovered around $790,000. 25% of the total sales for the last six months have been in the million plus range. And an equal amount have sold under $650,000.

60 percent of Oak Bay homes are now listed over a million. But only 10 percent are listed below $650,000.

The market seems to be heavily saturated with million dollar plus homes with over 10 Months of Inventory. Of course a lot of these homes, close to half, are not currently priced realistically to effect a sale. Realistically priced meaning the asking price is within 5% of market value.

I think this means buying anything over a million is risky business these days. If you are only relying on the real estate agent accurately pricing the property there is a 50/50 chance you'll over pay on the home. That might mean nothing to you today - but when it comes to sell a few years from now that will have a significant effect on your wealth. The market may have increased but your property's value remained stagnate. Or you may have a bigger loss than you neighbors if you have to sell in a down market.

Fairly new to Victoria...renting...debating whether to buy a condo. Have found this blog informative and entertaining. I think people are weary of hearing about the housing bubble, they have heard about it for a considerable time and unlike Victoria, in many places prices have continued to rise. I feel the more I learn the less I am sure about. My gut feeling is prices will go down more or stay flat for years. If inflation rises above target levels and they increase interest rates, with large debt loads trouble could really start to happen. We'd need a stronger economy to cope with higher interest rates...and that strength seems difficult to create.Thanks again for this blog, I will continue to follow it.

Prices for pre-owned condos will most likely continue to decline as developers are always creating more strata lots.

Building depreciation reports are causing strata councils to raise monthly strata fees to a point that the condo prices have to decline to offset higher monthly charges. Condos are also a way for the City to increase property taxes for sewer plants and bridges. As more house owners are tapped out on property taxes and other city user fees, the condo becomes the source for additional revenue by increasing the tax rate for condos.

A combination of additional strata fees and property taxes could add another $500 a month in home ownership costs to a condo in the near future. That would mean condo prices would have to decrease by $100,000 to offset the mortgage payment and taxes so that home owners are just equal to what they were paying before.

I suppose that's the big difference between buying today than 30 years ago. Home owner's are now the "cash cow" to be milked. You can't opt out of badly managed programs that have no accountability or responsibility to the citizens.

If we did have accountability then there would be a lot of municipal executives, mayors, city councils and directors of water and electricity placed in stocks in the town square and pelted with tomatoes.

Thought I would take a look at the different neighborhoods in Oak Bay and how they compared with each other. That made it necessary to determine a benchmark home price for the most common property in terms of house size, lot size and view amenity.

Of the last 500 sales in Oak Bay, the largest group of homes have had between 1,800 to 2,800 finished square feet and rest on non water view lots ranging in size from 5,000 to 10,400 square feet. What seems to make Oak Bay significantly different from other Core districts is that there are just as many or more properties that lay outside of this range than within in it. Or to put it another way, housing in Oak Bay is not homogeneous. There is lots of variations in size, style, age, views etc. This is Oak Bay's "character" appeal.

Up first is the neighborhood known as Estevan. During the last five years there have been 110 sales of which 47 met the parameters 47/110 or 43%. Prices for the benchmark home ranged from a low of $575,000 to a high of $1,100,000. The median came in at $711,500 for a 2,151 square foot home on a 6,750 square foot non water view lot.

Gonzales is mostly a rock with ocean views. Because of this a low percentage of homes fit into the benchmark. Only 5 out of 64 properties. These benchmark homes lay between $690,000 to $779,000 with an average price of $779,000 and a median of $705,000 for a 2,371 square footer on a 6,750 square foot lot.

Henderson had 101/295 or 34% of the last 5 years of sales fall within the benchmark. These ranged from $495,000 to $975,000. The Average at $658,691 and the median at $649,000 for a 2,183 square foot home on a 8,340 square foot lot.

North Oak Bay rang in at 59/136 or 43% for homogenous properties. Ranging from $485,000 to $1,015,000. Average price at $707,306 and the median at $685,000 for a 2,259 sq. ft. home on a 6,600 sq. ft. lot.

South Oak Bay had 148 out of 413 properties within the benchmark range (36%). The benchmark home started at $575,000 and shot up to $1,277,500. The average was $781,503 and the median was $741,503 for a 2,203 square foot home on a 6,650 sq. ft. lot.

And the last neighborhood was Uplands. Not a surprise that this hood had only 3 out of 125 fit into the benchmark. From $820,000 to $920,000. Average at $885,000 and the median at $915,000 for a 2,683 sq. ft. home on a 10,000 sq. ft. lot.

The benchmark Oak Bay home is selling between $300 to $340 per finished square foot. Mostly depending on which neighborhood the home is situated in.

In contrast that benchmark home would be selling for around $515,000 or $225 a finished square foot in Langford for a home with similar utility.

That seems like a lot of money for the difference in areas. However because the cost of financing is so cheap it only works out to be a difference in monthly payments of $500 per hundred thousand borrowed. Roughly a thousand bucks a month or $12,000 a year for not having to make the commute from Langford to your government cubicle.

For those dual income families with government or downtown jobs this seems to be an acceptable cost.

I just wonder if the cost of money increases would we see a reduction in the difference paid between the two areas?

Of the bubbliest housing markets in the US in 2006, those that were the first to experience price declines (in general) went on to experience the biggest overall price declines in the US housing correction. The weakest markets began to correct first. The same thing will happen in Canada.

Los Angeles, San Diego, Las Vegas and Phoenix were some of the biggest price gainers in the US. House prices in these cities peaked in 05-06, but the rate of price decline in these cities didn’t increase significantly until 2007. By 07-08 the debt-to-income ratio in the US was in decline.

Canada’s housing bubble continues to inflate as Canada’s household debt-to-income ratio soars higher. This ratio will peak and begin to decline. Similar to what happened in the US, house prices across Canada will fall as the debt-to-income ratio falls. As this happens, the weakest housing markets in Canada (think Victoria) will experience their biggest price declines.

It’s surprising that house prices in Victoria have fallen 12.2% below peak already, considering the heavy housing market stimulus (historically low rates, etc.) that continues to be applied to the Canadian housing market.

Victoria’s housing market has reacted negatively to all of Canada’s (price-boosting) housing market stimulus since 2010. This highlights the weakness of Victoria’s housing market - weakness that can only grow as house prices continue to fall and more (near peak) buyers go underwater on their mortgages. More underwater mortgages means less potential move-up buyers in Victoria. Less move-up buyers means less sales. Less sales will result in lower prices. This is exactly how it played out in the US, Ireland, Spain, Japan, Greece, etc. as prices corrected in those countries.

I suppose what is happening in Victoria is also happening on a much larger scale in Vancouver.

Our overall prices for all areas and all types of properties is getting skewed due to fewer sales in the lower price home areas of the Western Communities and Saanich Peninsula. And first time house buyers in the city are looking for properties that don't need immediate repairs. They just don't have the cash to pay for a new roof, cabinets or drain tiles after getting their mortgage. That makes them pay over market value for renovated homes. Sometimes as much as 10% more than market value.

Paying an additional $50,000 over market value may not seem a problem today, but it will effect your future wealth when it comes time to sell. Right now it's just borrowed money, but that's money that will never become equity.

Interesting article that was put out by ScotiaBank. It seems to be written in a unbiased way.

A balanced national market would likely have 5 to 7 MOI and new-listings-to-sale ratio between 1.5 to 2.5. At 6 MOI and 1.86 NLS% is in the middle. Nationally speaking we should then have stable prices for the next 3 months.

Although, I would not go as far as to say there is pent up demand for housing. Our vacancy and unemployment numbers have to come down before that's the case.

It's more likely that people are taking advantage of the low interest rates to move up the property ladder rather than new buyers.

Which is something to think about. If interest rates move up only marginally then our market would be in a liquidity trap. Then there is no advantage to moving up the property ladder. Then our marketplace would be almost entirely dependent on new buyers (fresh meat) to keep prices up. And they are just not there in any great numbers anymore. Right now it's mostly home owners selling to home sellers.

Then our marketplace would be almost entirely dependent on new buyers (fresh meat) to keep prices up. And they are just not there in any great numbers anymore.

First time buyers have consistently made up 20 to 24% of the marketplace in Victoria over the last 5 years...I haven't seen a down trend?

With the condo slump over the last 7/8 years I am starting to represent more and more first time buyers jumping straight into single family homes as they never got caught in the frenzy to buy a condo. I've represented 5 first time buyers buying homes over 600k this year with one pushing a million. All two professional income, 25 to 33 age range. 20% down the most common downpayment I see on homes over 600k being bought by first time buyers.

The phrase professional couple always brings up a mental picture of Bill Cosby's family when he played Dr. Huxtable.

Of course that isn't a professional couple anymore. Today it's anyone who has a government related job, wears comfortable shoes to work or uses a computer.

As I think about it more, I realize that I don't know any unprofessional single people. Even the guy that cuts my lawn has a diploma in landscaping - that makes him a professional too. I suppose a professional today is simply someone who gets paid for the work they do.

If you haven't seen a down trend in first time buyers and you have also seen an increase in FTBs now spending more cash on SFHs, are you saying that overall, FTBs are spending more on real estate

In my personal business I've seen FTBs buying more SFH homes versus condos but that is just my personal business. I don't have access to data that would show how much FTBs are spending on average over the last 5 years.

The lowest asking price in the Greater Victoria market area is for a 3,000 square foot detached home on a 7,800 square foot lot. Located just a short stroll to the beach.

Asking price is $249,900

Or your can have a panoramic ocean view home across the road from the beach and some of the island's best surfing. This 1,400 square foot home is situated on a 7,800 square foot lot. Asking price just $275,000

Why waste your life paying a mortgage for the next 25 years when you can be debt free in 10 years, enjoying an early retirement and world travel.

Come to Port Renfrew and try your low ball offer. The last home to sell in this hood went well below asking for just $165,000.

The barrier to buying a home is very low. 5% down and you're a home owner. Easily done just by you and your significant other taking out a catch up loan for an RRSP and in 2 or 3 years the loan is paid off and you've got yourself a down payment on a Fernwood starter.

You're now a responsible professional couple ready to move up the property ladder.

On out of towners, it's one of those things that's impossible to interpret without context. Is 22% high relative to historical numbers? What about other cities? Impossible to know what to think about that number on its own.

Sooke Village is a town characterized as being predominantly first time house owners, middle income and some upper income that ended up there after getting lost leaving the ferry.

There are 66 houses on city sized lots available ranging from a low of $280,000 for a TD Bank foreclosure to a high of $600,000 for a new 2,800 square foot home.

There is between 4 to 6 months of inventory in the city these days with the mid-point in sale prices being $366,500. That will get you a 2,000 square foot home on a 6,400 square foot lot. The bad news is that it took the average seller 86 days to find a buyer.

The homes are built just as good as any in Victoria, the people of the city love their children just as much as those in Oak Bay and you can grow pot in your back yard.

You just pay $200,000 to $300,000 less. Which is a bonus score if you're not chained to a downtown I.T. job coding spam and Angry Birds 2 all day.

House prices in Victoria have declined a significant amount since 2010 in an environment of falling interest rates. Even if rates remained at historically low levels for years (they won't) house prices in Victoria would continue to fall.

Interest rates in Canada have been kept at emergency levels for an unprecedented length of time. Policy makers think that Canada's economy is weak and fragile and couldn't withstand even a small rate hike. This is bad news for all Canadians. The Canadian economy is in serious trouble but those problems have been (temporarily) masked by overactivity in housing market related industries (the selling, building and financing of residential real estate). Sooner or later house prices across Canada will decline and when this happens the problems with Canada's economy will be exposed.

This extended period of extremely low rates in Canada continues to weaken the basic fabric of the Canadian economy. The longer this goes on the more difficult things will be for Canadian households when Canada's housing market economy can no longer mask the problems of the Canadian economy in general.

The Canadian housing market in general will go through a major, deep, multi-year price decline.

That house prices in most major Canadian markets are at all-time highs highlights the weakness of Victoria's market.

The Canadian economy faces challenging years ahead - years that will be without the economic boost of an overactive housing market as house prices fall across Canada.

House prices in Victoria have declined a significant amount in a heavily stimulated economic environment. Think of what could happen to house prices in Victoria when the extreme economic stimulus of an overactive housing market fizzles out.

There have been 288 house sales over the last five years in Broadmead. The most common property to sell ranges in house size from 2,200 to 3,200 square and rests on a 6,000 to 18,000 square foot non water view lot.

The average sale price is $719,668 and ranges from a low of $525,000 to a high of $900,000. The median price is $720,000 or about $267 per square foot.

Houses in this hood are typically a higher quality due to neighborhood building standards. Neighbors in this hood are quick to tell you if your gardening is less than adequate. Forget to cut the lawn once and you'll get a friendly reminder with an apple pie. Keep forgetting and you'll get a fish on your door step.

In the last 90 days some 603 detached freehold houses were bought in the core districts. Home prices range from a low of $315,000 to a high of $5,200,000 with the average price paid at $674,969. And on average it takes only 43 days to find a buyer and you're paying a little over $300 a finished square foot and about 9 percent over the government assessed value.

That big picture doesn't really tell you much about your house unless you are the average house. And most properties in the core don't fall into an average house on an average lot.

Another way to look at house prices is to group by percentages. If we look at the last 500 sales. Half of the buyers paid less than $580,000 for a home in the core.

10% paid less than $430,00020% paid less than $475,00030% paid less than $510,00040% paid less than $545,00050% paid less than $580,00060% paid less than $630,00070% paid less than $700,00080% paid less than $770,00090% paid less than $920,000Then the rest were the millionaires club. That last 10 percent covers a WIDE range of prices from 1 to 4.5 million bucks.For example if you're looking to sell your 2 million dollar property, there were only 4 buyers or less than 1 percent in your target market as serious buyers.